The Budget has been presented in a tone of 'All is well'. India is facing the heat of high inflation and slowing growth. Higher oil prices are hurting deficit on the current and fiscal side as well as fuelling inflation. FIIs are pulling out of the Indian markets.
The finance minister has talked the right language in the Budget to set the goals. But the focus now will have to be on execution and implementation.
The FM has focussed on improving the abysmally low tax-to-GDP ratio of around 10% by laying the roadmap of GST, bringing more services under the tax net and setting the date for DTC. Now if he can focus on collection through improved governance then his target of 24%-plus tax collection (far more than 14%-plus nominal GDP growth) can be achieved.
The FM has aimed at targeting subsidies through better governance. Implementation of UID project and setting up a task force for making direct transfer to BPL families could be a game changer. If the government can make diesel and cooking gas prices market-linked, then the provision for oil subsidy is reasonable.
The targeted fiscal deficit at 4.6% is lower than expected, partly due to aggressive estimates on the revenue side and a conservative estimate of the expenditure side. The government’s commitment to medium-term fiscal targets at 3.5 % for FY14 is reassuring to investors.
Measures like opening up of equity funds for foreign citizens, setting up of infrastructure funds for foreign investors at nominal tax rates and enhancing the debt limit for infrastructure borrowing will diversify long-term capital flows. If the government can maintain the momentum on the banking sector through new entrants and by opening up the retail and insurance sector for FDI flows, that will be a major sentiment booster and will reduce the reliance on FII flows.
Interest rates will be softening over FY12 as the net borrowing programme at Rs 3.43 trillion is lower than expected. Enhancing the allocation for judicial infrastructure by three times can help in speedier justice.
FM has talked of time-bound delivery on several initiatives and may be this is a new beginning on accountability. If FM can table action taken report on a half yearly basis it will change the perception about India.
Overall the Budget has talked the language which Investor’s would like to hear. Now the focus will be on implementation. Wish FM had announced of an implementation commission.